Small Business Lending is a “Confusing Mess”

June 5, 2012 at 3:16 pm

The owner of a company called Multifunding posted on the New York Times’ small business blog, “You’re the Boss,” about the labyrinth that can be small business lending. Multifunding matches small businesses with financing from a range of sources including banks, community banks, Small Business Administration, etc.

The main point of the blog post is that navigating the small business lending landscape can be extremely challenging for many entrepreneurs. He also points out that even quantifying the amount of lending happening and by which institutions is challenging, given disparate definitions of what consitututes “small business lending” by different agencies:

“One reason is that we can’t even agree on important definitions. The Small Business Administration reports on lending activity, but nobody knows what percentage of overall lending the S.B.A. accounts for. The big banks release their scorecards on small-business lending but they define small businesses as those with revenue of $20 million or less. For its reports, the Federal Reserve defines small businesses as having revenue of $50 million or less. For its reports, the Federal Deposit Insurance Corporation defines small-business loans as those with balances of $1 million or less. The merchant cash advance lenders and factors do not release reports at all.”

This was the issue that we had started to tackle in the lending paper we recently released (“Small Business Lending in NC: The Increasing Role of Community Lenders”).  Having a clear understanding of the lending landscape would definitely help assess how  much small business lending is occurring, what types of loan products are being offered, where they are being offered, and who is using them. Incorporating more community lenders, such as CDFIs and credit unions, would further elaborate on the role that they play at the local level. Streamlining reporting requirements and definitions would be a valuable first step.



Entry filed under: Banking, Banks, CDFI, Credit Unions, Small Business. Tags: , , , .

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